San Jose votes to raise pot tax, legal budget for pension reforms

Collective member Bill Samuels, 32, right smells the potent buds of marijuana at Buddy's Cannabis Patient Collective, in San Jose, on Thursday, Oct. 14, 2010, as owner, Matt Lucero, 47, tells him the various features of the bud. Samuels likes the community outreach the collective does, with breast cancer and AIDS walks. Samuels said he had been taking prescription pain pills due to a back injury, but is now able to forgo them altogether due to medical marijuana. (Karen T. Borchers/Mercury News)

SAN JOSE -- The San Jose City Council voted unanimously Tuesday to raise the city's tax on marijuana collectives to 10 percent starting in July.

Raising the city's marijuana tax was among Mayor Chuck Reed's budget recommendations for the coming year. San Jose voters in 2010 approved a tax on medical marijuana providers of up to 10 percent of gross receipts. The council later that year set the rate at 7 percent, with collection beginning in March 2011.

Though medical marijuana advocates have grumbled about the city's tax, no one spoke against the increase Tuesday. Tuesday's vote directed preparation of an ordinance raising the tax, which the council is expected to vote on June 4.

The current 7 percent marijuana tax generates $3.9 million annually, city officials said. Raising the rate to the maximum 10 percent would generate an additional $1.5 million, city officials said, for a total of about $5.4 million a year. The tax money could be used toward a variety of city programs including police and fire protection, street maintenance and pothole repair, parks and libraries.

There are 96 marijuana dispensary or collective businesses operating in San Jose, according to city officials.

The City Council in 2011 had adopted zoning and regulatory ordinances to limit the number and location of marijuana businesses in San Jose. The rules would have allowed just 10 marijuana collectives, limited them largely to industrial areas and required them to grow all their weed on-site. But activists later that year succeeded in qualifying a ballot referendum on repealing the laws, which they argued were overly restrictive.

Rather than put the referendum on the ballot, the council early last year repealed the city's marijuana regulations. City officials note that with the regulations repealed, all marijuana dispensaries in San Jose are technically illegal. The city has since focused enforcement on collectives that have failed to pay the city's marijuana tax or are located within 600 feet of a school.

San Jose officials have not indicated plans to seek an outright ban, as numerous other Bay Area cities have. But the ruling strengthens San Jose's hand in pursuing regulations. City officials said they plan to bring marijuana collective regulations and zoning before the council in the fall.

In other matters, the council Tuesday voted 8-3 to increase funding for the legal defense of the city's pension reform efforts that voters approved overwhelmingly in June. The vote raises the contract for the law firm Meyers Nave by $900,000 to a total of $2.1 million. The firm is handling the city's defense of Measure B, which city unions have sued to block, because the city's in-house lawyers are affected by the benefit changes and have a conflict of interest. City officials said the increase in funding will come from additional tobacco settlement funds received from the state.

The legal contract increase triggered more infighting on the council over pension reform. Councilmen Ash Kalra, Xavier Campos and Kansen Chu were opposed.

"I'd like to see those funds go toward services rather than an outside law firm," Kalra said.

Reed, however, said $20 million in savings on retirement benefits is anticipated in the upcoming budget.

"I look forward to hearing from Councilman Kalra how we're going to get the $20 million," Councilman Sam Liccardo said. "I've not heard a viable alternative."